By Brad Minor, M.Ed. Candidate in Human Resource Development, Peabody College of Vanderbilt University
Only a small number of human capital analytics (HCA) models exist. The most basic model found in the literature reviewed for this report is a three-step process used to measure human capital.
The most widely known model is the “LAMP Model” by Cascio & Boudreau (2008).
Other Measures Worth Noting
Measuring the Value of Employee Engagement
Survey instruments like the Gallup Q12 can be used to measure employee engagement, but is this truly worth measuring? Is engagement a valid measure of contribution to the bottom line? The answer to this question depends on who is being asked. Gallup certainly believes in it, but Gallup is also selling a tool to measure it, so its expert opinion on the subject is considered by some to be somewhat suspect. The numbers, however, may speak for themselves:
The most “engaged” workplaces (those in the top 25% of Q12 scores) were 50% more likely to have lower turnover, 56% more likely to have higher-than-average customer loyalty, 38% more likely to have above-average productivity, and 27% more likely to report higher profitability. (Labarre, 2001)
Some companies place great value on measures of employee engagement and continuously strive to improve those numbers because, to them, the numbers mean something substantial. Best Buy, for example, has even put a dollar figure on the value of its stores’ engagement levels. The company figured out that “the value of a 0.1% increase in employee engagement at a particular store is worth $100,000” (Davenport, Harris, & Shapiro, 2010, p. 55).
What is the correlation then between engagement and high performance? Does engagement drive high performance or do high performing organizations lead to employee engagement?
Sales Per Employee
Another measure that can be analyzed beyond its own face value is sales per employee (Dow Theory Forecasts, 2005). This number is a dollar figure; it is calculated using the following formula: annual sales divided by average employees. “Average employees” is calculated by adding the number of employees at the beginning of the year to the number of employees at year’s end, and then dividing that number in half. Analysis of this metric can yield some useful information, such as changes in productivity over time and valuable benchmarking data against industry-specific competitors; the latter can be leveraged to make strategic decisions, such as pricing, that have a heavy impact on profitability, even though those connections do not appear on the surface (Dow Theory Forecasts, 2005).
The Human Capital Value Metric
Employees at Mellon have come up with something called the “Human Capital Value Metric,” which “expresses the worth or value of the individual to the organization as the minimum expected contribution to the profit of the organization” (Bukowitz, Williams, & Mactas, 2004). This measure is especially useful when making compensation decisions; it helps the analyst figure out which employees contribute heavily to the company’s profit and, when coupled with information about an individual’s attrition risk, might come in handy for making tough choices regarding pay. Factors taken into consideration when determining the value of a person’s contribution include:
- Time and risk dimensions
- Learning curve
With this measure, it is possible to justify the approval of seemingly high compensation packages if an individual’s profit contribution is high enough. It might make sense, in certain instances, to retain a high contributor with an exorbitantly high level of compensation, because the value of keeping that employee on board, even with a high salary, might be higher than the value of replacing him or her with a lower-paid individual. This is a good example of how the outcome of decisions based on HCA data might differ from conventional, gut-level wisdom.
Bukowitz, W., Williams, R., & Mactas, E. (2004, May/June). Human capital measurement. Research Technology Management, 47(3), 43-49.
Cascio, W., & Boudreau, J. (2008). Investing in People. City: FT Press. (Amazon Kindle e-book)
Davenport, T., Harris, J., & Shapiro, J. (2010, October). Competing on talent analytics. Harvard Business Review, 88(10), 52-58.
Dow Theory Forecasts. (2005, May 9). People power. Dow Theory Forecasts, 61(19), 1-2.
Fitz-Enz, J., (2010). The New HR Analytics. New York: AMACOM.
Fitz-Enz, J. (2009, Autumn). Predicting people: from metrics to analytics. Employment Relations Today, 36(3), 1-11.
Fitz-Enz, J. (2009, August). Predictive leadership. Leadership Excellence, 26(8), 20.
Labarre, P. (2001). Marcus Buckingham thinks your boss has an attitude problem. Retrieved 12 15, 2010, from fastcompany.com:
Poppler, P., & Stark, E. (2010, May). Rare and inimitable: creating human capital advantage. Chief Learning Officer, 9(5), 26-48.